Introduction
After consulting with SEBI, BSE and NSE decide the factors in transferring shares to the T2T segment, i.e., the "Trade to Trade" segment. The primary motivation for switching to T2T is typically to reduce needless stock speculation. Due to the vulnerability of retail investors caught up in erratic price movements, SEBI constantly seeks volatile stocks.
So, what exactly is a stock trade? A segment known as "trade to trade (t2t) stocks" requires that any purchase or sale result in a mandatory delivery. This means that intraday squaring positions on T2T stocks are not allowed because it might increase speculative activity in these stocks. This blog explains what is a T2T stock.
Why are a few stocks categorised as T2T?
Exchanges monitor stocks with wildly fluctuating prices or high levels of volatility. The process includes consultation with SEBI, as it helps categorise the stock. To avoid keeping retail investors entangled in volatility, they move the highly volatile stock to the T2T segment. The segment restricts needless speculative activity on such stocks.
Based on their quarterly evaluations, the exchanges move stocks into or out of the T2T segment every two weeks. A stock may be moved to the T2T segment for various reasons, including but not limited to price-to-earnings overvaluation, price volatility, and market capitalisation. Additionally, there is a possibility of transferring securities into the T2T segment that are ineligible for trading in the F&O segment.
How to identify T2T stocks?
Under the type of instrument and settlement, exchanges classify the scrips into various series. The T2T stocks fall under a different series of classifications. Visit the NSE and BSE websites to view the list of these stocks. The categories taken into account before moving to the Trade to Trade segment are listed below.
● Price-to-earning ratio of stock
If the stock's valuation exceeds the price-to-earning(P/E) ratio, the BSE and NSE transfer it to the T2T segment. For example, if Nifty is within 10-15 and the stock's P/E is 25, the stock is considered fit to transfer to T2T. The P/E evaluation is based on earnings per share of stock.
● Market capitalisation
If the stock's market cap is below INR 500 crores, the stock is eligible for transfer to Trade to Trade stock. However, stocks valued below INR 500 crores often fall prey to value controllers and subsequently affect the traders.
Things to remember while trading in T2T stocks
The trade-to-trade stocks are only for delivery-based settlement. The stock bought should be paid entirely, or else there is no other option. Here are a few things to remember before trading T2T stocks.
The T2T stock bought and sold in a day falls under a different category in the eyes of SEBI.
● The stock gets delivered as any other stock at the time of purchase.
● If you sell the stock without delivery, it will be settled in the auction. However, it is costlier.
Most traders are aware of a stock’s speculative nature and potential risks. To make it easier for traders to identify these stocks, BSE and NSE have separate sections on the website.